1.

Definition of Accounting:

Accounting is the process of identifying, measuring and communicating economic information to permit
informed and decisions

2. Types of decision

Operating (profit, revenue, loss, expense)

Investment (long term asset, non - current asset)
Financing (non current liability, saving fund ?)
Dividend (cash, stock)

3. Uses of accounting information (SLICEGP)

S = Stockholder
L = Leaders
I = Investor
C = Creditors
E = Employee
G = Government & authority
P = Public

4. Quality character of accounting information (URRC)

Understandability
Relevant
Reliability
Comparability

5. Function of the accounting

Identifying
Measuring
Communicating
Decision

6. Definition of Assets:

An asset is a resource controlled by the entity as a result of past events and from which future economic
benefits are expected to flow to the entity.

7. Characteristic of Assets

Control by the entity

Past events
Future economic benefits are
8. Types of entity

(9) Basic Accounting Equation: A (Assets) = L (Liability) + OE (owners Equity)

(10) Basic Elements of Accounting:

The Five Elements

Assets

Liabilities

Owner's Equity

Revenue

Expenses

The first three elements - asset, Liability and Owner's Equity forms the Accounting equation and is
represented on the Statement of Financial Position.

The other two elements - Revenue and Expenses are represented on the Statement of Financial
Performance.

Assets

anything owned by the business is asset

Assets are future economic benefits controlled by the entity as a result of past transactions or other
past events. Assets should be recognised (recorded) in the Statement of Financial Position only if:

it is probable that future economic benefits embodied in the asset will

eventuate.

the asset possesses a cost or other value that can be reliably measured.

o this means:

the business has ownership on 'something'

that ownership must have come about by a transaction or other event.

that 'something' will give financial or other benefits in future.

that benefit is likely to come out in end.

 can put a $ value on it reliably.

Examples: Cash at Bank, Debtors, Stock, Accrued Revenue, Equipment, Prepayments, Land &
Buildings, etc

Liabilities

what ever a business owes others.

liabilities are future sacrifices of economic benefit that the entity is presently obliged to make to
another entities as a result of past transactions or events. It should be recognised in the Statement of
Financial Position if and only if:

it is probable that the future sacrifice of economic benefit will be required

the amount of the liability can be measured reliably.

o Means:

sacrifices (payments) of economic benefit (asset)

obliged (required) to make to some one

due to past transaction or event.

simply, an obligation to pay someone by some asset (usually cash) because you
owe them due to some past dealings.

Examples:

Creditors, Bank Loans, Accrued Expenses, Mortgage, Bank Overdraft

Owner's Equity

The owner's share in the business.

SAC definition:

Residual interest in the assets of the entity after the deduction of liabilities.

OE = A - L

Whatever is left after all liabilities are paid.

Revenue

are inflows or other enhancements, or savings in cash flow, of future economic benefits in the form of
increases in assets or reductions in liabilities of the entity, other than those relating to contributions by
owners, that result in increase in equity during the reporting period. A revenue should be recognised in
the operating (performance) Statement when and only when:

it is probable that the inflow or other enhancement or savings in outflows of future economic
benefit has occurred.

that it can be measured reliably

This means:

some form of asset is coming in (except owners contribution)

that will increase the assets of the business or

reduce the liabilities and

result in increase in OE.

Examples of Revenue

Cash sales, Credit Sales, Interest Received, Discount Received, Stock Gain, Commission
Received, Profit on Sale of Non Current Asset

Expenses

definition:

Expenses are consumption's or losses of future economic benefits in the form of reductions in assets or
increases in liabilities, other than those relating to distributions to owners that result in decrease in
equity. Recognised when and only when: it is probable that consumption or loss of economic benefits
resulting in reduction in assets and or liabilities has occurred and that it can be measured reliably.

It simply means:

o Asset has been consumed/sacrificed/eaten/chewed up/used up -which has led to

o reductions in Assets and or

o increase in liabilities with a net effect of

o reducing OE

o but which are not Drawings by the owner (distributions to the owner)

or Anything that reduces OE But NOT Drawings.

Examples:

Wages, COGS, Rent, Stock Loss, Loss on Sale of NCA, discount given, insurance etc etc
11. Rules of Debit (Dr.) and Credit (Cr.)

Personal Account

Debit the receiver

Credit the giver

Impersonal Account (Real Account/Assets Account)

Debit what comes in

Credit what goes out

Nominal Account

Debit all expenses and losses

Credit all incomes and gains

12. Component of annual report

C ho m p o n
ae in r t s o f
mc o m p a n y
as n A n n u a l
/r e p o r t
M .
DD
R e
p o
r t

13. Classification of Accounts

 14. Accounting Process

15. Compete sate of Financial Statement

sF t i a t e
mn a e n t
on fc
fii a n l a n c i
aS tl
pa t o s i t
oe n
m
e n
t

16. Measurement of Financial statements

a) Historical cost. (Actual cost of Assets and Liabilities)

b) Current cost (Immediate purchase cost)

c) Resizable value / statement value( Value Exchange )

d) Book Value / Written Down Value/ Carried Amount

Cost------------------------------------- 5000 tk

(-) Accumulated Depreciation ------ 2500 tk (five year deprecation)

----------------------------------------------------------

Book Value/ Carried Amount = 2500 tk

e) Present value ( without discounting)

f) Future value (with discounting)

17. Component of Balance sheet

18. Component of Income Statement

Revenue
Revenue is the money an entity receives from the sale of goods or services. Other terms
frequently used for revenue are sales, net sales, or sale revenue. It is also referred to as the top
line because revenues are reported at the top of the income statement.

Cost of Goods Sold

Cost of goods sold are the direct costs of producing the goods being offered by the entity. This
would include the materials, labor, and other resources required for production.

Gross Profit
Gross profit is the difference between the revenue received for the product less the cost of goods
sold.

Operating Expenses
Operating expenses are the amount an entity expends to maintain and operate the general
business. Operating expenses include research and development, marketing, general and
administrative, amortization of intangible assets (i.e. patents, good will, etc.), etc.
In addition, when an entity purchases a capital asset, such as a building or equipment, they
expense a portion of the asset over a number of years; this is called depreciation. Depreciation
expense is an accounting expense that is deducted from net income.
Operating Income

Operating income is equal to revenues minus cost of goods sold and operating expenses. In other
words, it measures the profits or losses of the day to day operations of the business. Another
name for Operating Income is Earnings Before Interest and Taxes (EBIT).

Other Income/Expenses
To obtain net income, further adjustments must be made to account for interest income and
expense, income tax expenses, and other extraordinary and miscellaneous items.

Profits
Revenues minus all expenses equals net income (profits or losses). Profits are also referred to as
net income or the bottom line because profits are reported at the bottom of the income
statement. Some analysts call these accounting profits because they include non-cash
accounting entries such as depreciation and amortization.

Income Statement Format

Revenue
Cost of Goods Sold Expense
--------------------------------------------
= Gross Profit (or Loss)
Operating Expenses (R&D, selling & adm., depreciation, etc)
-----------------------------------------------------------------------------
= Operating Income
Other Income/Expenses
+ investment income
Interest Expense
Taxes
+/- Non Recurring Events (Extraordinary items)
-------------------------------------------------------------------------------
= Profit or Net Income

19. Classification of cash flow statement.

Cash flows are classified as operating, investing, or financing activities on the statement of
cash flows, depending on the nature of the transaction. Each of these three classifications is
defined as follows.
Operating activities include cash activities related to net income. For example, cash
generated from the sale of goods (revenue) and cash paid for merchandise (expense) are
operating activities because revenues and expenses are included in net income.

Investing activities include cash activities related to noncurrent assets. Noncurrent assets
include (1) long-term investments; (2) property, plant, and equipment; and (3) the principal
amount of loans made to other entities. For example, cash generated from the sale of land
and cash paid for an investment in another company are included in this category. (Note that
interest received from loans is included in operating activities.)

Financing activities include cash activities related to noncurrent liabilities and

owners equity. Noncurrent liabilities and owners equity items include (1) the principal
amount of long-term debt, (2) stock sales and repurchases, and (3) dividend payments. (Note
that interest paid on long-term debt is included in operating activities.)

20. What is a Cash Flow Statement?

In financial accounting, a Cash Flow Statement, also known as Statement of Cash Flow, is a financial
statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents,
and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow
statement is concerned with the flow of cash in and out of the business. The statement captures both the
current operating results and the accompanying changes in the balance sheet. As an analytical tool, the
statement of cash flows is useful in determining the short-term viability of a company, particularly its
ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard
that deals with cash flow statements.

The statement of cash flows is divided into three sections:

A. Financing activities

B. Operating activities

C. Investing activities

A. Cash flow from financing activities (CFF)

CFF is cash flow that comes into play from generating or letting cash through the
issuance of additional equity, short or long-term debt for the firm's operations. This
covers:

(a) Cash inflow (+)

Sale of equity securities

Issuance of debt securities

(b) Cash outflow (-)

Dividends to shareholders

Redemption of long-term debt

Redemption of capital stock

Reporting Noncash Investing and Financing Transactions Data for the Statement
of cash flows(SOCF) is derived from three places:

Comparative balance sheets

 Current income statements

Selected transaction data

B. Cash Flow from Operating Activities (CFO)

CFO is cash flow that comes into play from regular operations such as revenues and
cash operating expenses net of taxes. This category covers:

(a) Cash inflow (+)

Revenue from sale of goods and services

Dividends (from equities of other entities)

Interest (from debt instruments of other entities)

(b) Cash outflow (-)

Payments to lenders

Payments to employees

Payments to suppliers

Payments to government

Payments for other expenses

C. Cash Flow from Investing Activities (CFI)

CFI is cash flow that comes to play through investment activities such as the acquisition
or disposition of current and fixed assets. This category covers:

(a) Cash inflow (+)

Sale of property, plant and equipment

Sale of debt or equity securities (other entities)

Collection of principal on loans to other entities

(b) Cash outflow (-)

Purchase of property, plant and equipment

Purchase of debt or equity securities (other entities)

Lending to other entities